Solutions Manual For Fundamental Accounting Principles (Volume 2) 15TH Canadian Edition By Larson/Jensen/Dieckmann

Land held for future expansion is classified as a long-term investment. It is not a property, plant and equipment asset because it is not being used in the production or sale of other assets or services. 3. The cost of a property, plant and equipment asset includes all normal, reasonable, and necessary costs of getting the asset in place and ready to use. For example, cost includes such items as the invoice price paid, freight costs, non refundable sales taxes (PST, HST) and all costs incurred related to installing and testing an asset before it is put into use. 4. Land is an asset with an unlimited life and, therefore, is not subject to depreciation. Land improvements refer to items such as fencing, parking lots surfaces, landscape lighting and have limited lives and are depreciated over their useful lives. 5. No. The Accumulated Depreciation, Machinery account is a contra asset account with a credit balance that does not represent cash or any other funds. Funds available for buying machinery would be shown on the balance sheet as liquid assets with debit balances, such as the account Cash and Cash Equivalents. The balance of the Accumulated Depreciation, Machinery account shows the portion of the machinery's original cost that has been charged to depreciation expense, and gives some indication of how soon the asset will need to be replaced. 6. Revenue expenditures, such as repairs, are made to keep a plant and equipment asset in normal, good operating condition, and should be charged to expense of the current period. Capital expenditures are made to extend the service potential or the life of a plant and equipment asset beyond the original estimated life and are charged to the plant and equipment asset account. After incurring a capital expenditure, a depreciation policy also needs to be established. 7. Because the $75 cost of the plant and equipment asset is not likely to be material to the users of the financial statements, the materiality principle justifies charging it to expense. 8. Danier Leather did not report any gains or losses on disposal of assets for its year ended June 28, 2014. However, the corporation did have an Impairment loss on property and equipment of $663,000. 11. Types of intangible assets are patents, copyrights, leaseholds, drilling rights, and trademarks. 12. WestJet reported $60,623,000 as Intangible assets at December 31, 2014. 13. A business can only record goodwill when the price paid for a company being purchased exceeds the fair market value of this company’s net assets (assets minus liabilities) if purchased separately. 14. Westjet did not report any Goodwill at December 31, 2014. 15. When an asset is constructed, such as the development of a new runway, all costs for construction-related materials and labour costs can be capitalized. Also any electricity and utilities consumed relating to the project, plus a reasonable amount for depreciation on any equipment used during construction. Other permitted costs include design fees, building materials and any interest charges on debt outstanding during the period of construction incurred to finance the project. QUICK STUDY Quick Study 9-1 (5 minutes) $18,000 + $180,000 + $3,000 + $600 = $201,600 Quick Study 9-2 (10 minutes) 1. (a) R (b) C (c) R (d) C 2. (a) Mar. 15 Repairs Expense ................................. 120 Accounts Payable .......................... 120 To record repairs. (b) Mar. 15 Refrigeration Equipment .................... 40,000 Accounts Payable .......................... 40,000 To record capital expenditure. (c) Mar. 15 Repairs Expense ................................. 200 Accounts Payable .......................... 200 To record repairs. (d) Mar. 15 Office Building .................................... 175,000 Accounts Payable .......................... 175,000 To record capital expenditure. Quick Study 9-3 (10 minutes) (a) (b) (c) PPE Item Appraised Values Ratio of Individual Appraised Value to Total Appraised Value (a) ÷ Total Appraised Value Cost Allocation (b) x Total Actual Cost Land .............. $ 320,000 320,000 ÷ 500,000 = .64 or 64% $ 345,6001 Building ........ 180,000 180,000 ÷ 500,000 = .36 or 36% 194,4002 Totals ............ $ 500,000 $ 540,000 1. 64% x 540,000 = 345,600 2. 36% x 540,000 = 194,400 2017 Apr. 14 Land ........................................................... 345,600 Building ..................................................... 194,400 Cash ...................................................... 85,000 Notes Payable....................................... 455,000 To record purchase of land and building. Quick Study 9-4 (10 minutes) TechCom Partial Balance Sheet October 31, 2017 Assets Current assets: Cash ....................................................................... $ 9,000 Accounts receivable .............................................. $16,400 Less: Allowance for doubtful accounts ............ 800 15,600 Total current assets ............................................... $ 24,600 Property, plant and equipment: Land ........................................................................ $48,000 Vehicles .................................................................. $62,000 Less: Accumulated depreciation ....................... 13,800 48,200 Equipment .............................................................. $25,000 Quick Study 9-5 (10 minutes) ($55,900 – $1,900)/4 = $13,500/year Quick Study 9-6 (10 minutes) Rate per copy = ($45,000 – $5,000)/4,000,000 copies = $0.01/copy Year Calculation Annual Depreciation 2017 $.01 × 650,000 = $6,500 2018 $.01 × 798,000 = 7,980 2019 $.01 × 424,000 = 4,240 2020 $.01 × 935,000 = 9,350 2021 $.01 × 1,193,000 = 11,930 $40,000 Quick Study 9-7 (10 minutes) Annual rate of depreciation = 2/5 = .40 or 40% per year Year Calculation Annual Depreciation 2017 40% × $86,000 = $34,400 2018 40% × ($86,000 – $34,400) = 20,640 2019 40% × ($86,000 – $34,400 – $20,640) = 12,384 2020 40% × ($86,000 – $34,400 – $20,640 – $12,384) = 2,576* 2021 0 $70,000 *The calculation shows $7,430 of depreciation but that amount would cause accumulated depreciation to exceed the maximum allowed of cost less residual ($86,000 – $16,000 = $70,000). Therefore, the depreciation for 2020 must be adjusted to $2,576. Quick Study 9-8 (10 minutes) Computer panel: $4,000/8 years = $500 depreciation Dry-cleaning drum: $70,000 - $5,000 = $65,000/400,000 garments = $0.1625/garment; $0.1625/garment × 62,000 garments = $10,075 depreciation Stainless steel housing: $85,000 - $10,000 = $75,000/20 years = $3,750 depreciation Miscellaneous parts: $26,000/2 years = $13,000 depreciation Total depreciation on the dry cleaning equipment for 2017= $500 + $10,075 + $3,750 + $13,000 = $27,325 Quick Study 9-9 (10 minutes) a. $5,000 $6,000 b. $3,000 $6,000 Calculations: a. 60,000 - 0 = 6,000/year x 10/12 = 5,000 10 years b. 6,000/year x 6/12 = 3,000 Quick Study 9-10 (10 minutes) a. $10,000 $10,000 b. $6,000 $10,800 Calculations: a. 2/10 = .2 or 20%; 20% x 60,000 = 12,000 x 10/12 = 10,000 for 2017 20%x()=10000for2018 Quick Study 9-11 (10 minutes) a. 10,000 14,000 b. 10,000 14,000 Calculations: 75,000 – 15,000 = 60,000/120,000 = $0.50 depreciation expense per unit produced $0.50 x 20,000 = $10,000 for 2017; $0.50 x 28,000 = $14,000 for 2018 NOTE: The units-of-production method is a usage-based method as opposed to a timebased method (such as straight-line and double-declining-balance) and therefore partial periods do not affect the calculations. Quick Study 9-12 (10 minutes) [($35,720 – $11,8201 ) – $1,570]/ 72 years remaining = $3,190 1.($35,720 – $4,200)/8 = $3,940/year × 3 years = $11,820 2.10 – 3 = 7 Quick Study 9-13 (10 minutes) 2017 Jan. 3 Barbecue – Rotisserie…………………………………… 1,000 Cash………………………………………………….. 1,000 To record the purchase of electronic rotisserie. Dec. 31 Depreciation Expense, Barbecue……………………… 1,560 Accumulated Depreciation, Barbecue………… 1,560 To record revised depreciation on the barbecue caused by the addition of a rotisserie; $7,000 - $200 = $6,800 ÷ 5 years = $1,360 PLUS $1,000 ÷5 years = $200; Total depreciation = $1,360 + $200 = $1,560. Quick Study 9-14 (10 minutes) Impairment losses occurred on the computer and the furniture in the amounts of $1,500 and $21,000, respectively. Calculations: Asset Cost Accumulated Depreciation Book Value Recoverable Amount Impairment Loss Building $1,200,000 $465,000 $735,000 $735,000 N/A Computer 3,500 1,800 1,700 200 $ 1,500 Furniture 79,000 53,000 26,000 5,000 21,000 Land 630,000 0 630,000 790,000 N/A Machine 284,000 117,000 167,000 172,000 N/A Quick Study 9-15 (10 minutes) a. 2017 Oct. 1 Accumulated Depreciation, Equipment ................ 39,000 Cash ........................................................................ 17,000 Equipment ......................................................... 56,000 To record sale of equipment. b. Oct. 1 Accumulated Depreciation, Machinery ................ 96,000 Cash ........................................................................ 27,000 Machinery .......................................................... 109,000 Gain on Disposal ............................................... 14,000 To record sale of equipment. c. Oct. 1 Accumulated Depreciation, Truck ........................ 33,000 Cash ........................................................................ 11,000 Loss on disposal ................................................... 4,000 Delivery truck .................................................... 48,000 To record sale of equipment. d. Oct.1AccumulatedDepreciation,Furniture..................21,000 Quick Study 9-16 (10 minutes) 2017 Dec 31 Accumulated Depreciation, Automobile .............. 13,500 Computer* .............................................................. 5,800 Automobile ........................................................ 15,000 Cash ................................................................... 2,750 Gain on Disposal ............................................... 1,550 To record exchange. *Computer = FV of assets received= $5,800 as given Quick Study 9-17 (15 minutes) 2017 Mar. 1 Accumulated Depreciation, Machine (old) .......... 36,000 Machine (new)2 ...................................................... 117,000 Cash1 ...................................................................... 63,000 Machine (old) ............................................... 90,000 To record exchange of machines. 1. Cash paid = $123,000 - $60,000 = $63,000 2. Machine (new) = $63,000 cash paid + $54,000 book value of old = $117,000 Quick Study 9-18 (10 minutes) 2017 Jan. 4 Franchise ............................................................... 95,000 Cash 95,000 To record purchase of franchise. Dec. 31 Amortization Expense, Franchise ........................ 9,500 Accumulated Amortization, Franchise ......... 9,500 To record amortization of franchise; $95,000/10 years = $9,500 per year EMAIL ME: For help with report, Assignment, Essay and thesis writing. Quick Study 9-19 (10 minutes) 2017 Oct. 1 Mineral Rights 35,000,000 Water Rights 4,000,000 Cash 9,000,000 Long-Term Note Payable 30,000,000 To record the purchase of intangibles. Dec. 31 Amortization Expense, Mineral Rights 875,000 Accumulated Amortization, Mineral Rights 875,000 To record amortization of mineral rights; $35,000,000 ÷ 10 years = $3,500,000/year; $3,500,000/year × 3/12 = $875,000. 31 Amortization Expense, Water Rights 100,000 Accumulated Amortization, Water Rights 100,000 To record amortization of water rights; $4,000,000 ÷ 10 years = $400,000/year; $400,000/year × 3/12 = $100,000. *Quick Study 9-20 (20 minutes) Motor (old) $45,000 - $5,000 = $40,000 ÷ 10 yrs× 8/12 = $ 2,667 Motor (new) $60,000 - $10,000 = $50,000 ÷ 8 yrs × 4/12 = 2,083 Metal housing $68,000 - $15,000 = $53,000 ÷ 25 yrs = 2,120 Misc. parts $15,000 ÷ 5 yrs = 3,000 Total depreciation expense to be recorded on the machine for 2017 = $ 9,870 EXERCISES Exercise 9-1 (10 minutes) Invoice cost ........................................................... $15,000 Freight costs ......................................................... 260 Steel mounting ...................................................... 795 Assembly ............................................................... 375 Raw materials for testing...................................... 120 Less: discount ($15,000 × 2%) ............................ 300 Total acquisition costs ..................................... $16,250 Note: The $190 repairs are an expense and therefore not capitalized. Exercise 9-2 (15 minutes) Cost of land: Purchase price for land................................................................ $1,200,000 Purchase price for old building ................................ 480,000 Demolition costs for old building ................................ 75,000 Levelling the lot ................................................................ 105,000 Total cost of land ................................................................ $1,860,000 Cost of new building: Construction costs ................................................ $2,880,000 Less: Cost of land improvements* ...................... 215,000 Cost of new building ............................................. $2,665,000 *The land improvements are a distinct PPE asset that depreciates at a different rate than the building. Therefore it should be debited to an account separate from the building. Journal entry: 2017 Mar. 10 Land ....................................................................... 1,860,000 LandImprovements215000 Exercise 9-3 (15 minutes) Allocation of total cost: (a) (b) (c) PPE Asset Appraised Values Ratio of Individual Appraised Value to Total Appraised Value (a) ÷ Total Appraised Value Cost Allocation (b) x Total Actual Cost Land $249,480 249,480 ÷ 594,000 = .42 or 42% $ 244,3462 Land Imprv. 83,160 83,160 ÷ 594,000 = .14 or 14% 81,4483 Building 261,360 261,360 ÷ 594,000 = .44 or 44% 255,9814 Totals $594,000 $ 581,7751 1. 552,375 + 29,400 = 581,775 2. 42% x 581,775 = 244,346 3. 14% x 581,775 = 81,448 4. 44% x 581,775 = 255,981 Journal entry: 2017 Apr. 12 Land .................................................................................... 244,346 Land Improvements ........................................................... 81,448 Building .............................................................................. 255,981 Cash ............................................................................. 581,775 To record costs of lump-sum purchase. Exercise 9-4 (20 minutes) 2017 Jan. 1 Land ................................................................................ 1,296,000 Building .......................................................................... 1,512,000 Equipment ...................................................................... 1,123,200 Tools ............................................................................... 388,800 Cash .......................................................................... 1,104,000 Notes Payable ........................................................... 3,216,000 To record lump-sum purchase. Calculations: (a) (b) (c) PPE Asset Appraised Values Ratio of Individual Appraised Value to Total Appraised Value (a) ÷ Total Appraised Value Cost Allocation (b) x Total Actual Cost Land $ 1,152,000 1,152,000 ÷ 3,840,000 = .30 or 30% $ 1,296,0001 Building 1,344,000 1,344,000 ÷ 3,840,000 = .35 or 35% 1,512,0002 Equipment 998,400 998,400 ÷ 3,840,000 = .26 or 26% 1,123,2003 Tools 345,600 345,600 ÷ 3,840,000 = .09 or 9% 388,8004 Totals $ 3,840,000 $ 4,320,000 1. 30% x 4,320,000 = 1,296,000 2. 35% x 4,320,000 = 1,512,000 3. 26% x 4,320,000 = 1,123,200 4. 9% x 4,320,000 = 388,800 Exercise 9-5 (10 minutes) 2017 Jan 1 Truck 63,000 Cash 63,000 Calculation: 37,500 + 13,500 + 6,750 + 5,250 = 63,000 Jan 4 Prepaid insurance 3,600 Gas expense 180 Cash 3,780 2017 Dec. 31 Depreciation Expense, Truck 11,100 Accumulated Depreciation, Truck 11,100 To record depreciation. Calculation: [(37,500 + 13,500 + 6,750 + 5,250) – 7,500] / 5 years = 11,100 Note: Insurance expense entries could also be made, to move from prepaid insurance, although not required in question. 9-17 Exercise 9-6 (15 minutes) (a) (b) (c) Year Straight-line Double-declining-balance (Rate = 2/4 = .50 or 50%) Units-of-production (Rate = [(169,200 – 24,000)/181,500] = .80/unit) 2017 36,3001 50% × 169,200 = 84,600 30,640 (.80 × 38,300) 2018 36,300 50% × (169,200 – 84,600) = 42,300 32,920 (.80 × 41,150) 2019 36,300 $18,3002 42,080 (.80 × 52,600) 2020 36,300 0 39,5603 1. (169,200 – 24,000)/4 = 36,300/year 2. Maximum depreciation is limited to $145,200 which is cost less residual ($169,200 – $24,000) therefore depreciation for 2019is $18,300 calculated as $145,200 – $126,900 accumulated depreciation recorded to date. 3. Maximum depreciation is limited to $145,200 which is cost less residual ($169,200 – $24,000) therefore depreciation for 2020is $39,560 calculated as $145,200 – $105,640 accumulated depreciation recorded to date